Why Most Professional Services Firms Hit a Growth Ceiling – and How to Break Through

The Guide to Growing Professional Services

Jeremy Rosmarin on the Unique Challenges of Scaling Professional Service Firms

Scaling a professional service business presents distinct challenges often overlooked by generic growth frameworks. Jeremy Rosmarin, who transitioned from scaling a 75-person family office operationally to founding Sidecar Capital Partners, an investment firm focused exclusively on small Canadian service businesses, provides a specialized playbook for founders in this sector. His insights stem from deep operational experience and a recognition that these "people-powered" firms require tailored support often unavailable in the market.

The Core Problem: Why Standard Frameworks Fall Short

Rosmarin argues that advice applicable to tech or manufacturing often misaligns with the realities of professional services. Key differences include:

• Human Capital Intensity: Success hinges on talent and process, making scalability different from product-based businesses.

• Practitioner-to-Orchestrator Transition: Many founders start as elite practitioners and must navigate a difficult personal and professional shift to become business leaders.

• Blurred Lines: The distinction between service delivery, sales, and marketing is often less defined, with practitioners frequently involved in business development and referrals.

• Geographic Expansion Nuances: Expanding requires finding local talent and knowledge, not just managing supply chains.

Three Hidden Constraints Sabotaging Growth

Rosmarin identifies three specific constraints that commonly hinder professional service firms from scaling effectively:

1. The Two Market Balance: Leaders must constantly balance the needs of the client market (delivering high-quality service) with the talent market (attracting, retaining, and compensating experts). Over-indexing on client delight can erode profitability if talent costs consume all margins; conversely, prioritizing profit over talent compensation limits the firm's ability to attract the necessary expertise.

2. The Advice Compensation & Incentive Dilemma: Pricing intangible, heterogeneous advice creates inherent conflicts. Time-based billing struggles in the age of AI where productivity increases dramatically but value delivered remains constant or increases. Commission-based models (like real estate) can incentivize transaction speed over optimal client outcomes. Finding a model that aligns firm incentives with client value is critical but challenging.

3. The Guild Mindset: Founders often prioritize their deep subject matter expertise ("well-earned pride") over objectively solving the client's core problem. This "man with a hammer" syndrome leads firms to apply their specific expertise even when the client's actual need requires a different or multidisciplinary approach.

The Solution: Mindset Shift and Tactical Adaptation

Overcoming these constraints starts with the fundamental shift from working in the business (as a practitioner) to working on the business (as an orchestrator and leader). This involves:

• Systems Thinking: Building technology and processes that make practitioners more productive and valuable within the firm's structure.

• Strategic Pricing: Moving beyond simplistic time-based fees to models that reflect client value, segment offerings, and potentially create recurring revenue streams without conflicts of interest.

• Selling Solutions, Not Services: Bundling services to address client problems comprehensively, often in a multidisciplinary way. This approach leads to higher average revenue per client and employee.

• Productization & Asset-Based Consulting: Creating pre-priced, clearly defined service packages or developing proprietary software tools that embed the firm's expertise, decoupling revenue from time and enhancing scalability.

Funding Readiness for Service Firms

Regarding external capital, Rosmarin emphasizes assessing readiness through three lenses:

1. Need for Capital: Is there a clear, value-creating use for the funds (e.g., managing working capital mismatches common in service firms, funding growth initiatives)?.

2. Value Beyond Capital: Does the potential funding partner bring strategic value, understand the service business model, and align with the founder's vision and control preferences?.

3. Founder Willingness: Does the founder truly want to do what's necessary to scale, understanding the personal and professional transformation required?. Rosmarin stresses there's "no shame in saying no" – the mistake is pursuing scale without commitment.

He advises starting conversations with potential partners early, viewing it as a long-term relationship-building process.